TORONTO, May 7, 2015 /CNW/ - H&R Real Estate
Investment Trust ("H&R REIT" or the "REIT") and H&R Finance
Trust (collectively, "H&R") (TSX: HR.UN; HR.DB.D; HR.DB.E and
HR.DB.H) today announced its financial results for the three months
ended March 31, 2015.
Summary of Significant Q1 2015 Activity
During the 15 months ended March 31,
2015, the REIT has sold properties for approximately
$1.3 billion while acquiring
approximately $300 million of
assets. Through these dispositions H&R REIT has formed
strategic relationships with H&R's new co-owners and has
significantly strengthened its balance sheet by reducing H&R's
debt to total asset ratio from 49.2% at the beginning of 2014 to
45.4% at March 31, 2015.
Despite the dilutive impact of these sales with the positive impact
of the foreign exchange, H&R grew FFO per unit by 2% in Q1 of
2015 as compared to Q1 2014, a testament to H&R's strategy of
diversification both by asset class and geographic location.
New Industrial Platform
In 2014, the REIT entered into agreements to sell to an
affiliate of the Public Sector Pension Investment Board ("PSP") and
affiliates of Crestpoint Real Estate Investments Ltd.
("Crestpoint") (collectively, "CrestPSP") a 50% interest in a
portfolio of Canadian industrial properties and a 49.5% interest in
a portfolio of U.S. industrial properties (collectively, the
"Industrial Portfolio"). H&R REIT Management Services LP,
a wholly-owned subsidiary of the REIT, will remain the property
manager and collect industry standard fees. On December 22, 2014, the REIT sold interests in 84
of the 85 Canadian properties to CrestPSP for a total selling price
of approximately $508.3
million. CrestPSP assumed mortgages of approximately
$161.7 million and received a
mark-to-market adjustment on the assumed mortgages of approximately
$11.1 million. The REIT
provided CrestPSP with a vendor take-back mortgage of approximately
$62.0 million. The net proceeds
of $273.5 million were used to repay
bank
indebtedness.
On March 24, 2015, the REIT sold
interests in 16 U.S. properties to CrestPSP for a total selling
price of approximately U.S. $150.5
million. CrestPSP assumed mortgages of approximately
U.S. $56.2 million and received a
mark-to-market adjustment on the assumed mortgages of approximately
U.S. $3.5 million. The REIT
provided CrestPSP with a vendor take-back mortgage of approximately
U.S. $10.1 million. Equity
accounting has been applied to this joint venture arrangement for
the U.S. properties. In addition, on March 24, 2015, the REIT sold an interest in one
Canadian industrial property to CrestPSP for approximately
$51.5 million and provided CrestPSP
with a vendor take-back mortgage of approximately $23.2 million. The REIT plans to build on
this strategic alliance with PSP and Crestpoint by expanding on
this new industrial
platform.
U.S. Residential
On February 10, 2015, the REIT
acquired a residential property in Dallas, TX for U.S. $52.3 million at an expected capitalization rate
of 5.6%. The property consists of 398 rental units
representing net rentable area of 362,976 square feet.
Average occupancy is 95.0% and average monthly rent is U.S.
$1,140 per unit. In
April 2015, the REIT acquired two
properties in Orlando, FL
comprising 714 residential units for U.S. $102.9 million at an average expected
capitalization rate of 5.5%. Average occupancy for these two
properties is 94.0% and average monthly rent is U.S. $1,119 per unit. With these latest
acquisitions, the REIT has a portfolio of 1,808 residential
units. In addition, construction commenced on the REIT's
project in Long Island City, NY
with Tishman Speyer as its partner
for the development of 1,884 rental units. The total budget
at the 100% ownership level is expected to be $1.2 billion with occupancy scheduled to begin at
the end of 2017.
Leasing Activity
Effective December 31, 2014, Royal
Bank of Canada vacated 274,100
square feet at the REIT's Front Street office property in
Toronto, ON. The REIT has
leased 231,170 square feet to Toronto Dominion Bank for an average
term of approximately 11 years, commencing in three phases: 96,090
square feet effective June 1,
2015; 99,312 square feet effective October 1, 2015; and 35,759 square feet effective
August 1, 2016. The REIT
has also leased a further 53,500 square feet to Penguin Random
House Canada effective November 2015
for 10.5 years.
In February 2015, Gowlings Canada
Inc. renewed, for a further 15 years, its 130,274 square foot lease
at 160 Elgin St., Ottawa, ON,
which was to expire in 2016.
In February 2015, the REIT entered
into a direct lease with TransCanada Pipelines Limited for 153,033
square feet at Telus Tower in Calgary,
AB in which the REIT has a 50% ownership interest.
Exposure to Target
Target Corporation has discontinued operating stores in
Canada through its subsidiary
Target Canada Co. ("Target"). Primaris has an interest in
nine malls where Target is a tenant: a 50% interest in four of
these malls and a 100% interest in the other five malls.
Three of the leases are guaranteed by Target Corporation, the U.S.
parent of Target. The total 2014 annual gross rent from
Target represents 0.6% of H&R's rentals from investment
properties (including equity accounted investments) of $1.3 billion. The Target stores are well
positioned in these malls and leased at an average net rent of
$5.58 per square foot which provides
the opportunity to subdivide and remerchandise for higher rents,
should Target disclaim their leases. To date, Target has
disclaimed seven of their leases, including the three that are
guaranteed by Target's U.S. parent.
Mortgage Financing and Unencumbered Pool
In Q1 2015, the REIT repaid one mortgage upon maturity of
$42.6 million which had an interest
rate of 5.22%. As at March 31,
2015, excluding real estate assets reported in H&R's
equity accounted investments, the REIT had 74 unencumbered
properties with a fair value of approximately $1.6 billion and numerous other properties with
very low loan to value ratios. As at March 31, 2015, excluding real estate assets
reported in H&R's equity accounted investments, the REIT had 41
properties valued at approximately $1.6
billion which are encumbered with mortgages totaling
$351.3 million. In this pool of
assets, the average loan to value is 21.6%, the minimum loan to
value is 7.4% and the maximum loan to value is
29.0%.
Operating Highlights
H&R REIT's average remaining term to maturity as at
March 31, 2015 was 9.7 years for
leases and 6.3 years for outstanding mortgages. Occupancy at
March 31, 2015 was 97.6%, generally
consistent with 97.8% at December 31,
2014 and 97.9% at March 31,
2014. Leases representing only 2.6% of total rentable area
will expire during the remainder of 2015.
Financial Highlights
The following table includes non-Generally Accepted Accounting
Principles ("GAAP") information that should not be construed as an
alternative to comprehensive income (loss) or cash provided by
operations and may not be comparable to similar measures presented
by other issuers as there is no standardized meaning of Funds from
Operations ("FFO") under GAAP. Management believes that these
are meaningful measures of operating performance. Readers are
encouraged to refer to H&R's combined Management Discussion and
Analysis ("MD&A") for further discussion of non-GAAP
information presented.
|
3 months ended March
31
|
2015
|
2014
|
Rentals from
investment properties (millions)
|
$299.3
|
$311.9
|
Property operating
income
|
$170.2
|
$181.6
|
Net income
(millions)
|
$94.1
|
$113.1
|
FFO
(millions)(1)
|
$139.9
|
$135.1
|
FFO per Stapled Unit
(basic)
|
$0.48
|
$0.47
|
FFO per Stapled Unit
(diluted)
|
$0.47
|
$0.46
|
Cash provided by
operations (millions)
|
$179.9
|
$189.7
|
Distributions per
Stapled Unit
|
$0.34
|
$0.34
|
Payout ratio per
Stapled Unit (as a % of FFO)
|
70.8%
|
72.3%
|
(1)
|
H&R's combined
MD&A includes a reconciliation of property operating income to
FFO. Readers are encouraged to review the reconciliation in
the combined MD&A.
|
The REIT's adoption of IFRIC 21, Levies, has resulted in
the property taxes for the REIT's U.S. properties all being
recorded in Q1 for the related year. The impact of the adoption of
this policy is a reduction in property operating income and net
income of $25.5 million and
$21.6 million for the three months
ended March 31, 2015 and March 31, 2014 respectively.
Monthly Distribution Declared
H&R's declared distribution for the month of June is
scheduled as follows:
|
Distribution/Stapled
Unit
|
Annualized
|
Record
date
|
Distribution
date
|
June 2015
|
$0.11250
|
$1.35
|
June 16,
2015
|
June 30,
2015
|
2015 Annual Unitholders' Meeting
H&R will host its annual Unitholders' meeting this year on
Monday, June 8, 2015 at 1:00 pm at the TSX Gallery, 130 King Street West,
Toronto, Ontario.
About H&R REIT and H&R Finance Trust
H&R REIT is Canada's
largest diversified real estate investment trust with total assets
of approximately $13.5 billion as at
March 31, 2015. H&R REIT is a
fully internalized REIT and has ownership interests in a North
American portfolio of high quality office, retail, industrial
and residential properties comprising over 46 million square
feet.
H&R Finance Trust is an unincorporated investment trust,
which primarily invests in notes issued by a U.S. corporation which
is a subsidiary of H&R REIT. The current note receivable
balance is U.S. $220.4 million.
In 2008, H&R REIT completed an internal reorganization which
resulted in each issued and outstanding H&R REIT unit trading
together with a unit of H&R Finance Trust as a "Stapled Unit"
on the Toronto Stock Exchange.
Forward-looking Statements
Certain statements in this news release contain forward-looking
information within the meaning of applicable securities laws (also
known as forward-looking statements) including, among others,
statements relating to the objectives of H&R REIT and H&R
Finance Trust, strategies to achieve those objectives, H&R's
beliefs, plans, estimates, intentions, and similar statements
concerning anticipated future events, results, circumstances,
performance or expectations that are not historical facts
including, the amount of distributions to unitholders and the
expected capitalization rates of properties the REIT has
acquired. Forward-looking statements generally can be
identified by words such as "outlook", "objective", "may", "will",
"expect", "intend", "estimate", "anticipate", "believe", "should",
"plans", "project", "budget" or "continue" or similar expressions
suggesting future outcomes or events. Such forward-looking
statements reflect H&R's current beliefs and are based on
information currently available to management. These statements are
not guarantees of future performance and are based on H&R's
estimates and assumptions that are subject to risks and
uncertainties, including those discussed in H&R's materials
filed with the Canadian securities regulatory authorities from time
to time, which could cause the actual results and performance of
H&R to differ materially from the forward-looking statements
contained in this news release. Those risks and uncertainties
include, among other things, risks related to: prices and market
value of securities of H&R; real property ownership;
availability of cash for distributions; restrictions pursuant to
the terms of indebtedness; liquidity; credit risk and tenant
concentration; interest rate and other debt related risk; tax risk;
ability to access capital markets; dilution; lease rollover risk;
construction risks; joint arrangements risk; currency risk;
unitholder liability; co-ownership interest in properties;
competition for real property investments; environmental matters
and changes in legislation and indebtedness of H&R. Material
factors or assumptions that were applied in drawing a conclusion or
making an estimate set out in the forward-looking statements
include that the general economy is stable; local real estate
conditions are stable; interest rates are relatively stable; and
equity and debt markets continue to provide access to capital.
H&R cautions that this list of factors is not exhaustive.
Although the forward-looking statements contained in this news
release are based upon what H&R believes are reasonable
assumptions, there can be no assurance that actual results will be
consistent with these forward-looking statements. All
forward-looking statements in this news release are qualified by
these cautionary statements. These forward-looking statements are
made as of today, and H&R, except as required by applicable
law, assumes no obligation to update or revise them to reflect new
information or the occurrence of future events or
circumstances.
Additional information regarding H&R REIT and H&R
Finance Trust is available at www.hr-reit.com and on
www.sedar.com.
SOURCE H&R Real Estate Investment Trust